Update: Vietnam Cuts Base Rates to Revitalize Economy

The State Bank of Vietnam, the country’s central bank, Oct 20 decided to cut the base rate to 13 per cent from 14 per cent, double interest rate of bank reserves to 10 per cent and re-fund VND20.3 trillion t-bills to local banks in order to add liquidity to revitalize the economy despite still high inflation, SBV said on its Web site.

 

This is the first time SBV has cut the base rate, effective from today Oct 21, and it also cut the refinancing rate to 14 per cent from 15 per cent and discount rate to 12 per cent from 13 per cent.

 

Governor Nguyen Van Giau explained on SBV’s Web site that the move is aimed at averting pending risks from the global financial crisis to ensure security and safety of the banking systems and liquidity of the entire economy.

 

Since the start of the year, the government of Vietnam has been tightening the belts to cool down overheat of the economic growth by requesting local banks increase compulsory reserves, asked them to buy one-year t-bills worth of VND20.3 trillion Mar 17, thrice raising base rates to 8.75 per cent from 8.25 per cent from Feb 1, to 12 per cent from May 19 and to 14 per cent from June 11 this year.

 

Between Jan and Sept, the government has also cut VND37 trillion of non-urgent projects to tame inflation and reduce trade deficit.

 

A recent survey by the Vietnam Chamber of Commerce and Industry (VCCI) on 282 small and medium enterprises showed that up to 72 per cent of them is short of capital and high lending rates, the Saigon Economic Times said.

 

In the first nine months this year, inflation rocketed to 22.7 per cent on year.

 

Responding to the SBV’s base rate cut, local stock players returned to buy in, sending VN-Index to jump 2.46 per cent to the benchmark of 379.94 points with market volume of 16.9 million shares worth VND565 billion traded today. (www.sbv.gov.vn, The People)